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Join the Investor's Pantheon

Understanding history's greatest investors can help you identify the best the market has to offer.

One of the most spectacular sights in Dublin, Ireland -- aside from the very holy Guinness factory -- is the Long Room in the Old Library at Trinity College. More than 180 feet long, the room is lined by approximately 200,000 texts, as well as the busts of some of Western civilization's greatest thinkers, from Socrates to Jonathan Swift. It's a pantheon of scholarship -- and it fits in one room.

The pantheon of master investors would be much smaller than that. If we were to build a Long Room, a pantheon of investors, here at Fool HQ, which texts would we place on our hallowed shelves? Whose portrait would be most prominently hung?

Off the top of my head: Benjamin Graham, Warren Buffett, and Peter Lynch. There are more, to be sure, but not too many more. Considering that half of American families are "in" the market, that's not a lot -- making it easier for the rest of us to study what works.

Grasp GrahamThe grandfather of the group is Benjamin Graham, author of The Intelligent Investor. He taught investors to buy shares of companies trading for less than the value of their assets. Unfortunately, with so many investors in the market today, there aren't many of those opportunities around. 1-800 Contacts(NASDAQ:CTAC), selling for almost nine times its current assets, is not a stock Graham would buy. He'd be more interested in companies such as Cooper Tire & Rubber(NYSE:CTB) and Great Atlantic & Pacific Tea(NYSE:GAP). Despite some problems over the past few years, both stocks are currently selling for roughly the amount of their cash, investments, inventory, and accounts receivable.

Graham also drove home the point that if you are taking the risk of investing in equities, your potential for return must exceed that of virtually risk-free bonds. And he made the famous observation that in the short term, the stock market is a voting machine, while in the long term, it is a weighing machine. As a result, Graham tended toward large, stable companies that paid dividends.

Be Buffett's buddyBuffett was (literally) a student of Graham's. The "Oracle of Omaha" made valuations the driver of his investing strategy. Using conservative estimates and discounted cash flows, Buffett knew what his stocks were worth and held them until the market came around. He grew to love bear markets because they let him buy great companies on the cheap. That strategy has made his Berkshire Hathaway one of the most successful companies in the world.

Buffett also modified Graham's theories to fit his own ideas. Graham, for example, would invest in most any company he found to be undervalued -- insurers, utilities, railroads -- regardless of how well he understood the business model. Buffett prefers companies he understands. Some of his most lucrative investments are incredibly simplistic: soft-drink maker Coca-Cola, newspaper publisher The Washington Post , and consumer-products manufacturer Gillette(NYSE:G).

Learn to love LynchLike Buffett, Lynch liked companies that he could easily understand. Lynch also stressed the importance of valuation -- attractive cash-to-debt and PEG ratios were two criteria he looked for in potential investments. But he didn't eschew the small, and he didn't avoid uncertain turnaround scenarios. In fact, small companies and turnarounds -- such as Lynch's famous experience with La Quinta -- gave him monster returns while managing Fidelity Magellan.

With the auto industry due for a turnaround and the company trading for less than its current asset value, Nissan(NASDAQ:NSANY) -- despite its substantial debt position -- is a stock Graham and Lynch would tell me to further inspect. In One Up on Wall Street, Lynch famously impels investors to "buy what you know," and, hey, my buddy Dan loves his Maxima.

Add it upIt's impossible to be the next Graham, Buffett, or Lynch. And if you could be, the strategies that proved so lucrative for each of them probably wouldn't prove as lucrative for you. As Graham pointed out -- and as Michael Lewis wrote in Moneyball -- as soon as a winning strategy is widely copied, it generally ceases to be winning. That's the catch-22 of acclaim.

What you can doYou can, however, take the best from each of the masters and apply it to specific situations in the market. And by simply following the wisdom imparted by these market geniuses, you can beat the market. I know because I'm watching Fool co-founders Tom and Dave Gardner do it in their Motley Fool Stock Advisor service. In three years of existence, Tom and Dave's stock picks are up 61% and 56%, respectively, versus an S&P 500 return of just 18.5%.

Tom recommended Corporate Executive Board(NASDAQ:EXBD) in the middle of the 2002 bear market, and the stock has delivered 175% gains for subscribers. Amid harsh market conditions, Tom knew it was important to "find businesses with sustainable growth in cash flows." That's pure Buffett. The P/E at the time, however, was 50. That's not Buffett at all, but Tom still called this company a bargain when he factored in cash flow and growth. That's what Lynch -- no fan of high P/E ratios, either -- would have done after he complimented management on its incredibly generic name.

David called Marvel Enterprises(NYSE:MVL) -- the owner of rights to 4,700 superheroes -- a high-risk, high-reward situation in 2002. Graham and Buffett would never put their capital in a company as risky as Marvel. But they would have missed out on 535% returns to date, as well. (Of course, this is no knock on Buffett. The Oracle's track record speaks for itself.)

But would it surprise you that David used some of Graham and Buffett to identify Marvel as ripe for the picking? Writing in July 2002, David noticed that Marvel's market cap -- approximately $170 million -- was roughly equal to the box-office receipts from Spider-Man. Realizing that Marvel was holding 4,699 more potential blockbusters in the hole, David saw a bargain before the market did.

Foolish final thoughtsYou can't be Graham, you can't be Buffett, and you can't be Lynch. Heck, you can't be Jim Furyk, either, but you can use his short-game approach to make you a better golfer. The same goes for investing. The key is using a bit of each master to find the very best the market has to offer.

With more than 8,000 companies trading on the major exchanges, that can be a chore. If you want some direction or if you want to learn more about the masters, try a subscription to Tom and Dave Gardner's Motley Fool Stock Advisor. For $149, you'll get two stock recommendations and the wisdom of the masters delivered every month to your inbox. And for a limited time, you'll also get a free copy of the Fool's Blue-Chip Report 2005: 10 Monster Stocks for the Next Decade (a $49 value).

You might not end up with a place in the investor's pantheon, but you will be a smarter investor. Click here to learn more.

Tim Hansonowns none of the companies mentioned in this article. Coca-Cola is a Motley Fool Inside Value recommendation. At the Fool, no writer is too cool fordisclosure.and Tim's pretty darn cool.